SEMA INDUSTRY INDICATORS

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1 SEMA INDUSTRY INDICATORS Economic data strengthened over the last month. The employment report led the way, but across the board incoming economic data was firm, setting up what could be an extremely strong second quarter. JUNE 2018 The economy is growing 4.8 percent year-over-year. Incoming data suggests second quarter economic growth will be extremely strong, coming in as CURRENT OUTLOOK FUTURE OUTLOOK NEGATIVE POSITIVE NEGATIVE POSITIVE high as four percent. Industrial production moved higher in April as positive factors combined. Most notably, manufacturing is seeing broad-based expansion across diverse industries. Economic growth for the year is on track to be the fastest year of growth in the current expansion. While retail sales slowed a bit in April, the consumer appears to be generally healthy. Accelerating wage gains are accompanying solid employment growth. Disposable income is growing 3.9 percent year-over-year and stock prices and real estate valuations both moved higher over the last month. Consumer spending was very strong in April and even moderate gains in May and June will leave second quarter growth between 3.5 and 4 percent. Consumer confidence remains high despite rising gas prices and political uncertainties in areas like international trade. There is some concern that consumer spending is growing faster than income. While consumer debt is rising, consumer assets have grown more quickly. The financial obligation ratio for households remains near multidecade lows. Consumers have room to maintain, and even increase, spending in the near-term. Businesses also look well positioned for growth and sentiment looks strong. NFIB s small business optimism is at record highs. The ISM business surveys suggest solid expansion for the private sector. Business fixed investment has been growing and the tax cuts could drive additional investment. There remain some concerns. Interest rates are rising and the 10-year treasury yield is the highest it has been in seven years buoyed by strong growth prospects, rising inflation and expectations for interest rate hikes from the Fed (economists expect four more 25 basis point increases this year). With each rate increase, the yield curve flattens a bit more. Inverted yield curves have historically been a reliable signal of an imminent recession. While the near-term risk of recession remains low, the risk rises in outer years. SEMA INDUSTRY INDICATORS JUNE

2 ECONOMICS The second reading for Q1 growth was revised down slightly to 2.2 percent. The key reason was slower growth of inventories which leaves room for greater growth in the quarters ahead. The tax cut is driving increased economic activity and business investment. Q1 business investment was revised higher from an estimated 6.1 percent to 9.1 percent. The economy is growing 4.8 on a year-over-year basis and the second quarter could see growth approach 4 percent - one of the strongest quarters of the current expansion. Consumer sentiment edged lower in May. There has been little trend in consumer sentiment over the last year as it has moved within a tight eight-point range with a lowerbound of 93.4 and an upper bound of The May reading of 98.0 remains in the upper end of that range. Interestingly, and perhaps perplexing, consumers anticipate unemployment will remain low, while at the same time, they expect income growth to slow in the coming months. These are contradicting perspectives as a tight labor market should drive wages higher. Consumer spending rose 0.6 percent in April, above the consensus of 0.4 percent. Spending is up 4.7 percent over the last year and all signs suggest strong gains in spending in the second quarter. Even small gains in spending in May and June will produce strong Q2 spending growth. Disposable personal income is up 3.9 percent from a year ago, driven higher by gains in private sector wages and salaries which is up 4.9 percent from a year ago. We are seeing even stronger wage and salary gains in manufacturing and other goods producing segments of the economy. U.S. ECONOMIC GROWTH - Bureau of Economic Analysis, Astra Insights CONSUMER SENTIMENT University of Michigan, Astra Insights CONSUMER SPENDING Bureau of Economic Analysis, Astra Insights Consumer Sentiment (1966:Q1=100) 12 per. Mov. Avg. (Consumer Sentiment (1966:Q1=100)) 11% 9% 8% 7% 6% 3% U.S. Unemployment Rate 12 per. Mov. Avg. (U.S. Unemployment Rate) 2.2% - Real GDP (Q/Q % Change SAAR) 12 per. Mov. Avg. (Real GDP (Q/Q % Change SAAR)) 3.8% SEMA INDUSTRY INDICATORS JUNE

3 ECONOMICS The labor market is extremely hot right now. Exceeding expectations, another 223,000 new jobs were added in May and pushed the unemployment rate down to 3.8 percent - the lowest since April Average hourly wages rose 2.7 percent from a year ago. We continue to anticipate that historically low unemployment will begin to exert upward pressure on wages. We ve now added jobs in 92 consecutive months, the longest streak since the government began collecting this data back in the 1930s. The biggest gains this month were in healthcare (31,7K), retail (31,1K), and professional and business services (21K). The dollar appreciated 2.6 percent in May, likely driven by strong economic results in the U.S.. Rising inflation will drive domestic interest rates higher and put upward pressure on the dollar. Expectations for rising domestic interest rates probably outweighed concerns of trade wars and reciprocal tariffs between the U.S. and its major trading partners. We ll see if this holds over the next month. The dollar remains down 1.9 percent from a year ago. U.S. UNEMPLOYMENT 11% 9% 8% 7% 6% 3% Bureau of Labor Statistics, Astra Insights U.S. Unemployment Rate 12 per. Mov. Avg. (U.S. Unemployment Rate) TRADE WEIGHTED U.S. DOLLAR INDEX % -1.9% -1 Trade Weighted U.S. Dollar Index (Y/Y % change) 12 per. Mov. Avg. (Trade Weighted U.S. Dollar Index (Y/Y % change)) Auto parts production in the U.S. was up 0.2 percent in April and is up 6.6 percent over last year. Overall industrial production is up 3.5 percent over the last year. Overall industrial production moved higher in April consistent with strong underlying economic growth. Manufacturing moved higher as 15 of 20 industries posted gains in the month. Mining activity moved higher in response to higher oil prices. Federal Reserve, Astra Insights INDUSTRIAL PRODUCTION: AUTO PARTS Industrial Production: Auto Parts 12 per. Mov. Avg. (Industrial Production: Auto Parts) 6.6% Federal Reserve, Astra Insights SEMA INDUSTRY INDICATORS JUNE

4 AUTOMOTIVE May new vehicle sales declined to 16.8 million units on a seasonally adjusted annualized basis. This represents a decrease of 1.8 percent from the prior month on a seasonally adjusted basis but is up 0.6 percent from a year ago. Despite concerns surrounding higher gas prices and rising interest rates, strong economic fundamentals have buoyed car sales led by low unemployment, solid consumer confidence, and strong household financials. National gas prices moved up another 12 cents in May. Gas prices in May averaged $2.99, roughly 19 percent higher than the year-ago period. This is the highest monthly average we ve seen since November Higher oil prices have put upward pressure on gas prices as we enter the summer driving season. We ve seen oil prices decline slightly on reports oil production in the U.S. is increasing and more rigs are coming online. Futures markets see oil prices remaining in the $60 dollar range and in turn, gas prices are likely to stay elevated in the coming months but further increases should be muted. Travel on all roads and streets in the U.S. increased by 0.5 percent in March 2018, compared with March Seasonally adjusted travel for March 2018, the most recent month for which data is available, was estimated to be billion vehicle miles, up 3.1 billion vehicle miles from a year ago. This total includes 78.7 billion vehicle-miles on rural roads and billion vehicle-miles on urban roads and streets. MONTHLY NEW LIGHT VEHICLE SALES 2,050 1,550 1, Light Vehicle Sales - SA Thousands 12 per. Mov. Avg. (Light Vehicle Sales - SA Thousands) Bureau of Economic Analysis, Astra Insights GAS PRICES U.S. All Grades All Formulations Gas Price 12 per. Mov. Avg. (U.S. All Grades All Formulations Gas Price) U.S. Energy Information Administration, Astra Insights VEHICLE MILES TRAVELED 3% 2% 1% -1% -2% 1,401 $ % -3% Total Vehicle Miles Driven 12 MA (Y/Y % Change) U.S. Federal Highway Administration, Astra Insights SEMA INDUSTRY INDICATORS JUNE

5 INSIGHTS FROM SEMA There are approximately 272 million light vehicles in operation in the United States today, of which nearly 122 million are passenger cars and 150 million are light trucks. Together, mid-range / traditional cars and pickup trucks represent almost half of the vehicles on the road. The specialty equipment market is a $41 billion dollar industry. Customers spend the most money on pickup upgrades, followed by mid-range / traditional and SUV upgrades. SEMA SHOW 2017 VEHICLES IN OPERATION (VIO) DATA Mid-Range / Traditional Pickup CUV SUV Small Car Van Upscale Sports Car Alt Power 7% 6% 11% 13% 16% 2 23% 1% % of Vehicles on Road % of Vehicles on Road Source: 2018 Experian, Data as of March 31, 2018 SPECIALTY EQUIPMENT MARKET SIZE BY VEHICLE SEGMENT Pickup Mid-Range / Traditional SUV CUV Upscale Small Car Sports Car Van Alt Power $4.10 $3.36 $2.85 $2.77 $1.44 $0.33 Source: 2016 SEMA Consumer Market Data $7.42 $6.47 USD Billions $12.05 With more than 160,000 industry professionals and an exhibit space of more than 1.2 million net square feet, the 2017 SEMA Show was an indicator that the specialtyequipment industry is strong and thriving. BY THE NUMBERS 163,000 people attended the 2017 SEMA Show the highest attendance ever recorded and a 3 percent growth from last year. 3,600 Media Attendees 2,400 Exhibiting Companies 1,200,000 Total Net Square Feet of Exhibit Space 88% of attendees found products they had never seen before. Our industry continues to develop new and innovative products. 87% 59% of attendees planned on ordering from an exhibitor they saw at the SEMA Show in the next 12 months. of attendees reported that their company s overall sales were up in The SEMA Show is a trade-only event held each year in Las Vegas. The 2018 SEMA Show will take place Oct 30 - Nov 2, Want to learn more? Please visit SEMA INDUSTRY INDICATORS JUNE

6 APPENDIX U.S. ECONOMIC GROWTH: Gross Domestic Product, or GDP, is a measure of a country s total economic activity. It represents the value of all goods and services produced within a country. More simply, it s the sum of a country s consumption, government expenditures, investments, and net exports. This graph shows the percent change per quarter at a seasonally adjusted annualized rate. CONSUMER SENTIMENT: The Index of Consumer Sentiment comes from the University of Michigan s Survey of Consumers. The index captures consumers opinions on a variety of factors, such as how their current financial situation compares to a year ago, how they expect their financial situation to change and whether the next 12 months are a good time to buy a new vehicle. CONSUMER SPENDING: Personal consumption expenditures (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy. The index is adjusted for inflation and seasonality. CIVILIAN UNEMPLOYMENT RATE: The unemployment rate is the number of unemployed individuals as a percent of the total labor force. The Labor force includes all individuals 16 years of age and older who reside in 1 of the 50 states or the District of Columbia. Unemployed individuals are individuals who have actively sought work within the past four weeks. TRADE-WEIGHTED U.S. DOLLAR INDEX: The trade-weighted U.S. dollar index provides a measure of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners. It provides a gauge for how the U.S. dollar is performing against global currencies. A weaker dollar vis-à-vis other world currencies will make U.S. produced goods more attractive to foreign buyers. It can also mean a higher relative price for imported goods. INDUSTRIAL PRODUCTION - AUTO PARTS: Industrial production of auto parts is a measure of real output for all facilities located in the United States manufacturing auto parts and allied goods. Growth in the production index from month to month is an indicator of growth in the industry. TOTAL LIGHT VEHICLE SALES (THOUSANDS OF UNITS): Total U.S. cars and light trucks sold per month, including both domestic and foreign brands. CONTACT INFO sema.org Kyle Cheng kylec@sema.org AstraInsights.com Shawn DuBravac, PhD, CFA Shawn@AstraInsights.com AVERAGE U.S. GAS PRICE (PER GALLON): Weekly average U.S. retail gasoline prices per gallon. This includes all grades and formulations. VEHICLE MILES TRAVELED: The Federal Highway Administration s Traffic Volume Trends is a monthly report based on traffic count data. These data are collected at approximately 4,000 continuous traffic counting locations nationwide. Estimates are re-adjusted annually to match the vehicle miles of travel from the Highway Performance Monitoring System and are continually updated with additional data. Copyright 2018 SEMA and Astra Insights. All Rights Reserved. SEMA INDUSTRY INDICATORS JUNE